First Digital Trust, a Hong Kong-based company, is hopeful that the regulation of the digital assets sector in the city will be accelerated. Hong Kong aims to establish itself as a global hub for cryptocurrency, but currently, only two virtual asset trading platforms, Hash Blockchain and OSL Digital Securities, have obtained full operational licenses. Many other crypto exchanges are still waiting for their licenses.
Vincent Chok, the CEO of First Digital, acknowledged that Hong Kong’s current approach to trading regulation is more conservative and slower than in other jurisdictions due to its priority of investor protection. However, he emphasized that as of June 1, operating an unlicensed virtual asset trading platform in Hong Kong is now a criminal offense. The Securities and Futures Commission (SFC) has also published an “alert list” that identifies suspicious virtual asset trading platforms or unlicensed entities operating in Hong Kong, warning investors that they may be targeted.
In July, the Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) released their findings on local stablecoin regulation. Shortly after, JD Technology Group subsidiary Jingdong Coinlink Technology Hong Kong Limited announced plans to issue a stablecoin pegged to the Hong Kong dollar. The HKMA recognizes the company as a participant in the sandbox program.
In comparison, Dubai has made significant progress in the stablecoin sector. Tether, the largest stablecoin provider, revealed plans to launch a stablecoin pegged to the United Arab Emirates dirham in partnership with UAE-based Phoenix Group and Green Acorn Investments. Furthermore, a former MIT alumnus and SoftBank executive introduced a dirham-backed stablecoin, which was listed on decentralized finance protocols Uniswap and PancakeSwap.
Chok believes that banks are unlikely to rush into offering digital asset custody services due to the additional liability beyond their risk appetite. However, several companies with established trust structures have stepped in to fill this gap. Nevertheless, Standard Chartered has been allowed to offer crypto custody services in the United Arab Emirates, starting with Bitcoin and Ether.
While the licensing regime for digital asset trading services in Hong Kong may be slow, the city is making progress in other areas of Web3 integration. This includes applications in central bank digital currencies (CBDCs) and the tokenization of real-world assets. Chok highlighted that BTC and ETH exchange-traded funds in Hong Kong allow for a unique “in-kind” subscription mechanism, providing a flexible and simple investment process for investors. The HKMA’s Project Ensemble regulatory sandbox aims to explore the tokenization of real-world assets and interbank settlements using a wholesale CBDC.
Overall, Hong Kong is striving to establish itself as a prominent player in the digital assets sector, despite facing challenges in regulation and competition from other global hubs like Dubai.